Buy To Let

Buy to Let Mortgage – What you Need to Know

A rental property can be an excellent investment opportunity and one you don’t want to miss out on, but if you don’t understand how a buy-to-let agreement works rest assured you are not alone. Buy-to-let mortgages can appear confusing and complicated, but once you understand the basics, you’ll be ready to seize the moment, buy a property, and turn savings into profits.As an authorised mortgage broker, we are happy to help if you’re unsure which provider to choose to help fund your investment, or just need some unbiased advice. 

We have got all of your key questions covered below. 

Who can get a BTL Mortgage?

Most people can obtain a BTL mortgage, but you need to fulfill a certain criteria. As with a residential mortgage, your lender will want to carefully assess the risk in lending you money, so they will take your credit history into account. They will also review your income and would be unlikely to offer you a buy-to-let mortgage if your annual earnings are below a certain threshold.

If you require any help or clarification of these points our dedicated brokers are happy to help.

How do BTL Mortgages Work?

Buy-to-let mortgages aren’t much different to the loans made on residential properties but there are a few subtle differences and some additional related costs too;

• Many buy to let landlords prefer to use interest-only mortgages so that the capital borrowed is not repaid until the end of the mortgage term.

• Because a buy-to-let property is a business proposition your aim is to make money not live in the property yourself. To pay back the mortgage you need a steady flow of tenants to pay the rent and help you meet the monthly repayments. Bear in mind you are not allowed to live in a property yourself if you have a buy-to-let mortgage on it.  

• The deposit required when purchasing a buy-to-let property is often higher, typically 25% of the property’s value.The higher the deposit sum you can contribute, the lower the interest rate on your mortgage is likely to be.

• Remember that the stamp duty payable on a buy-to-let property will be higher than on a residential one. 

• The mortgage rate will be higher on a BTL mortgage.

How much can you borrow on a BTL Mortgage?

The amount you can borrow will depend on the amount of rental income you can achieve which in turn will be influenced by the property itself and the local rental market. In normal circumstances, lenders will want your rental income to be 25-30% higher than your mortgage payments, so the more you can charge in rent the more you will be able to borrow.

To find out about the rental market in your chosen area check local press and websites and windows of letting and estate agents. You may also find an online buy-to-let mortgage calculator useful.

Where can you get a BTL Mortgage from and how can a Mortgage

Broker help?

The majority of the big banks provide buy-to-let mortgages. However, there are some specialist lenders as well. The best thing to do is to speak with a mortgage broker, as they will have access to all of the best deals, ensuring that you have a great selection to choose from. Their expert advice will also be invaluable when it comes to selecting the BTL mortgage that is right for you.

Planning for when there is no rent coming in

Your property is not going to have tenants all of the time. There are going to be ‘voids’ where your property is unoccupied while you’re trying to find new tenants. This is why it is imperative to have a financial cushion. When your rent does come in, it makes sense to pay off the mortgage and keep the extra in a savings account for the voids in tenancy and any repair bills.

Don’t rely on selling a property to repay the mortgage

It is imperative to make sure you do not fall into the trap of assuming you will be able to sell the property to repay the BTL loan. If the prices drop on your property, you may not be able to sell the property for as much as hoped.

Buy to Let and Tax implications and Advantages

It is vital to be aware of the tax implications. Capital Gains Tax is 18% if you are a basic taxpayer, or 28% if you are a higher rate taxpayer. Income tax is also applicable and it depends on your income tax band.